World Economy Stretches Amid COVID Concerns... "Recovery May Not Be Smooth"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "Economic rebounds are being confirmed in countries that had implemented strict lockdown measures. However, the road to recovery may be long and not smooth." (Wall Street JournalㆍWSJ)

On the 23rd (local time), the Purchasing Managers' Index (PMI) of the United States, Europe, and Japan rose sharply, indicating an improvement in the sentiment of economic agents, which had been frozen due to the novel coronavirus infection (COVID-19). Although the spread of COVID-19 has not subsided, the lifting of strict lockdown measures in most major countries has raised expectations that economic activities will revive.

The first to react was the market. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), commonly known as the "fear index," closed the day at 31.37, down 1.26% from the previous session. This index, which surpassed the 40 level on the 11th amid concerns of a second wave, has since declined despite the increase in COVID-19 cases, alleviating market anxiety.

This psychological change was also reflected in private surveys. According to a survey conducted by UK economic analysis firm Oxford Economics from the 17th to 19th, targeting 159 global economic experts and businesspeople, the proportion of respondents who forecast an improvement in economic growth over the next two years exceeded 40%, an increase of more than 10 percentage points compared to last month. Negative outlooks somewhat decreased. Oxford Economics explained, "This is the first time during the pandemic that corporate pessimism has eased."

Experts have also begun to mention optimistic forecasts for economic recovery. James Bullard, President of the Federal Reserve Bank of St. Louis, presented a positive outlook on economic recovery at an online conference held that day. He said, "We have implemented very aggressive monetary and fiscal policies in response to the COVID-19 crisis," and added, "We expect a fairly solid recovery in the second half of this year." He also noted, "Inflation is expected to approach the 2% target." This aligns with the previous day's forecast by Stephen Schwarzman, CEO of Blackstone, who said, "As economic activities halted by COVID-19 resume, the economy will show a V-shaped recovery over the coming months."

The psychological shift was largely influenced by the US government's successive announcements of plans to expand economic stimulus measures and the easing of concerns over the US-China trade war, which was a major uncertainty. US Treasury Secretary Steven Mnuchin mentioned at an event that additional stimulus measures are being prepared with lawmakers and could be passed next month.

Additionally, the quick damage control by US officials, including President Donald Trump, following Peter Navarro, Director of the White House Office of Trade and Manufacturing Policy's remarks about the possible termination of the US-China trade agreement, also acted as a positive factor. This helped alleviate fears that the trade agreement might collapse, providing stability to the market. After Navarro's remarks, President Trump emphasized on Twitter that "the trade agreement with China is completely intact."

However, experts caution against cheering as if the economy has fully returned to a recovery trend. The US and Eurozone PMIs remain below the 50 mark, which indicates economic contraction, and the impact of the second wave of COVID-19 on the economy cannot be ignored. Chris Williamson, Chief Business Economist at IHS Markit, said, "The return to growth will be difficult to accelerate due to continued weak demand for goods and services," and warned, "The resurgence of COVID-19 could cause the economic recovery to lose its way."

Carsten Brzeski, Chief Eurozone Economist at ING, also evaluated that "PMI figures show early signs of a V-shaped recovery," but cautioned, "This phenomenon may not last long amid concerns over the size of corporate bonds and high unemployment rates." The International Monetary Fund (IMF) has announced that it plans to revise downward the global GDP forecast for this year in its June economic outlook report to be released on the 24th, compared to the forecast made in April.

This content was produced with the assistance of AI translation services.